The promotion of competition is vital to the Indian economy

Live Mint, March 23, 2020

By Pradeep S Mehta

Speaking at an event staged by a media house and held at the beginning of March, Prime Minister Narendra Modi inter alia spoke about working on fair competition as one of the four pillars to achieve India’s target of a $5 trillion economy. In order to attain such an ambitious goal, it is clear that the government needs to design and adopt laws and policies that deliver economic democracy and competitiveness. In terms of laws, late last month, the government proposed far-reaching amendments to the Competition Act, including critical changes to the scope and functioning of the Competition Commission of India (CCI).

Around the same time, William E. Kovacic, former chair of the US Federal Trade Commission, in a speech at the UK Competition and Markets Authority, highlighted key institutional challenges that competition authorities around the world face. These include preserving their independence, which is considered necessary to perform core policymaking functions, diagnosing problems of competition accurately and fixing them and displaying legitimacy and effectiveness in the face of severe public doubts about the value of markets and the quality of public administration. Addressing these challenges would be necessary for competition authorities to be effective in current times.

India’s draft Competition (Amendment) Bill, 2020, does touch upon some of these issues, albeit only in varying degrees. Despite a few good proposals made in it, some noticeable suggestions and omissions may constrain the government’s ability to foster a competitive business environment.

First, consider the CCI’s independence. The draft bill proposes an overarching governing board that would have general superintendence, direction and management powers over the CCI. As envisioned, this board would comprise not just commission members, but also secretaries from the Union finance and corporate affairs ministries as ex-officio members, and also four part-time members appointed by the Centre. The rationale: to enable better coordination between the CCI and the government, enable expert external assistance to the commission in undertaking key functions, and have structural consistency with other regulators like the Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI).

While some of these are valid objectives, no rationale has been offered for why these cannot be met within the existing design of the CCI, which was conceived to operate independently of the government. This is a key requirement, highlighted by Kovacic as well. For instance, at present, the CCI has adequate powers to appoint experts to assist it in discharging its functions. It also communicates routinely with the government and the Parliament through submissions of periodic reports. Moreover, while RBI has a “central board” and Sebi has a “board”, these are part and parcel of the structures of these regulators, and do not act as additional supervisory or governance layers—something that seems to be envisaged in the CCI’s case. Reviewed closely, members of the commission together effectively act as its board, sans the nomenclature.

There are grave risks in creating a supervisory layer above commission members. There is no such precedent anywhere in the world. Given that ex-officio and part-time members of the governing board will be appointed by the government, unnecessary state intervention in its functioning cannot be ruled out. No wonder, two eminent experts on competition policy, Pallavi Shroff and S. Chakravarthy, members of the Competition Law Review Committee that preceded the draft bill, voted against the idea of a governing board.

Government committees often do not review past recommendations and proceed afresh, which is a wasteful approach. For instance, an earlier committee headed by Dhanendra Kumar, former chairman of CCI, had inter alia recommended the inclusion of provisions relating to the “collective abuse of dominance” to deal with cases where many businesses indulge in price parallelism to exploit shortages, as in the case of onions, but there is no tacit collusion.

Another challenge is to fix competition problems. Efficient adjudication is one of the critical functions of any competition authority. Jurisprudence is developed and precedents are set through that process. This requires expertise in competition issues, an understanding of interlinkages between different sectors, and an ability to interpret law in the light of changing realities without fear of or favour to interested parties. It is for this reason that a dedicated body is needed to hear appeals arising from CCI decisions. Unfortunately, the draft bill does not move the needle on this.

Under the prevailing practice, it’s for the National Company Law Appellate Tribunal (NCLAT) to take up appeals against CCI orders, but this is a common appellate authority for all company matters. The NCLAT is also overburdened with sundry cases, thus the need for a dedicated Competition Appellate Tribunal to hear appeals.

The draft bill also ought to have placed emphasis on awareness generation and capacity creation to foster competition. For Modi’s economic vision to have a better chance of fulfilment, India needs a national competition policy that could help fix policy-induced market distortions that hamper fair rivalry and keep entire sectors from achieving competitive dynamism and growth.

The CCI is engaged in assessing many policies and laws on competition principles, but for the desired outcomes to materialize, the exercise needs the backing of government policy.

Pradeep S. Mehta is secretary general of CUTS International

Amol Kulkarni of CUTS contributed to this article

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